Risk conditions

How risk conditions switch a strategy between Risk-On and Risk-Off

A strategy always holds one of two allocations, and its risk conditions decide which one. Risk-On is the default — your normal allocation, the strategy exactly as you built it. A triggered risk condition moves it to Risk-Off, the defensive allocation you defined; when the condition clears, it moves back. There is no third state and no gap between the two: with nothing configured, the Risk card states the baseline plainly — "Without a condition, the strategy stays in Risk-On at all times."

The switch is an allocation change and nothing else. The app's risk step puts it in exactly those terms — "Define risk conditions that switch the strategy to its Risk-Off allocation when triggered." — and you build the conditions in the Risk card, described as "Automatically de-risk when markets turn". A strategy running Risk-Off is not paused, halted or liquidated; it holds whatever its Risk-Off allocation holds.

What a single risk condition is made of

A risk condition is one watched series, one comparison, and two behavior settings — enough to read as a single sentence: when SPY is less than its 200-period simple moving average for two weeks, switch to Risk-Off. The builder, headed "New risk condition", writes every rule out as a sentence like that one, and each part of it is a value you select to change.

That example is a Double series condition: what the signal is measured against is another series rather than a number. The other shape you build by hand, Single series, measures one transformed series against two thresholds you type. Beyond these two, the Quantitative regimes group offers three rules that decide from a model instead of a comparison: Hidden regimes (Markov), Clustering and, on a Combined only, Strategy's own performance — condition types covers what each of the five shows. The Indicator choices are the same for both hand-built shapes: "Raw price" (raw price), "Simple moving average" (SMA), "Percent change" (percent change) and "Average momentum" (average momentum). Rather than build from scratch, you can start from a ready-made risk template and adjust it.

How the Risk-Off and Risk-On thresholds work

A Single series risk condition has two thresholds, set independently: a Risk-Off one that switches the strategy into Risk-Off, and a Risk-On one that switches it back. Because they are two separate numbers rather than one line, the condition gets a distinct entry point and a distinct exit point: set the Risk-Off threshold at 25 and the Risk-On threshold at 20 on a volatility reading, and the strategy only returns to Risk-On once the reading has fallen a clear distance below the level that made it defensive. That gap is what stops a reading hovering around one value from flipping the allocation back and forth — the whipsaw the two thresholds exist to damp. A Double series condition has no numeric thresholds at all: the comparison between the two series is the whole condition.

What Risk-Off does to your allocation

Switching to Risk-Off swaps in the Risk-Off allocation profile — a complete allocation with its own weighting method and its own invested portion, typically more defensive than the Risk-On one. The two sit side by side in the Allocation card: Risk-On is the allocation the strategy uses while no condition is firing, and Risk-Off the one it swaps to while a condition is. Because the Risk-Off profile can put less capital to work, going defensive shows up as a larger cash reserve, not as a stopped strategy — see Risk-On and Risk-Off for what changes between the two. Until you configure the defensive side, the app shows "Risk-Off allocation needs to be set". Fincanva does not tell you how defensive to be, or when — see Is this financial advice?.

What the confirmation delay and auto-rebalance do

Two per-condition settings decide when a flip is acted on and whether it forces a rebalance. Confirmation delay (weeks) makes the condition wait before the strategy acts — a whole number from 0 to 12, with the hint "0 = act immediately." — so a move that reverses inside the window never changes the allocation; the trade-off it buys is covered in confirmation delay. Auto-rebalance ("Trigger a rebalance when the condition flips.") decides whether the switch triggers a rebalance the moment it happens or waits for the next scheduled one — see auto-rebalance on flip. How the two pace against the strategy's own clock is covered in How Risk-Off affects rebalancing.

Limits and edge cases

• At most two risk conditions. A strategy holds a first and a second condition, and there is no third slot. Removing the first promotes the second into its place.
• The app combines two conditions with Or. Either one triggering is enough to switch the strategy to Risk-Off; they never both have to fire, so a second condition makes a strategy go defensive more often, not less. The label above the list tracks this — "Always Risk-On" with none configured, "Match → Risk-Off" with one, "Any match → Risk-Off" with two. See two-condition combination.
• An identical Risk-Off allocation is a no-op. If the Risk-Off allocation is configured the same as Risk-On, triggering changes nothing. The app flags it before you backtest with "Risk-Off allocation is the same as Risk-On." and badges the profile "Matches Risk-On".
• The behavior settings are per condition. Each condition carries its own confirmation delay and its own auto-rebalance setting, so one can act immediately while the other waits out its window.

Related

• Set up a risk condition — build or edit one, step by step.
• Risk-On and Risk-Off — the two allocation profiles a condition switches between.
• Condition types · Confirmation delay · Auto-rebalance on flip — the pieces one condition is built from.
• When risk management changes a strategy — the trade-off you take on by adding one.
• How often your strategy rebalances — the clock a flip rides when Auto-rebalance is off, and does not when it is on.